Warsaw Ltd operates at capacity and makes glass-topped dining tables and wooden chairs, which are then typically sold as sets of four chairs with one table. However, some customers purchase replacement or extra chairs, and others buy some chairs or a table only, so the sales mix is not exactly 4:1. Warsaw Ltd is planning its annual budget for the financial year 2020. Information for 2020 is as follows:

Input prices

Direct materials

Wood $5.30 per board metre

Glass $11.5 per sheet

$14 per direct manufacturing labourDirect manufacturing labour hour

Input quantities per unit of output

Chairs Tables

Direct materials

Wood 1.2 board metres 1.7 board metres

Glass 2 sheets

Direct manufacturing

labour 3 hours 6 hours

Machine-hours (MH) 2 MH 5 MH

Inventory information, direct materials

Wood Glass

Beginning inventory 27 200 board metres 8 700 sheets

Target ending inventory 29 360 board metres 9 500 sheets

Sales and inventory information, finished goods

Chairs Tables

Expected sales in units 172 000 45 000

Selling price $70 $900

Target ending inventory in units 8 400 2 050

Beginning inventory in units 7 500 2 150

Chairs are manufactured in batches of 500 and tables are manufactured in batches of 50. It takes three hours to set up for a batch of chairs and two hours to set up for a batch of tables. Warsaw Ltd uses activity-based costing and has classified all overhead costs as shown in the table below:

CostType BudgetedVariable BudgetedFixed Costdriver

Manufacturing:

Materials

Handling $342 840 $600 000 No. of board metres .. used

Set-up 97 000 300 740 set up hours

Processing 789 250 5 900 000 Machine hours

Non manufacturing:

Marketing 2 011 200 4 500 000 Sales Revenue

Distribution 54 000 380 000. No. of Deliveries

Delivery trucks transport units sold in delivery sizes of 500 chairs or 500 tables.

Required

For the year 2020:

1. Prepare the revenues budget. (1 mark)

2. Use the revenues budget to:

1. find the budgeted allocation rate for marketing costs (1.5 marks)

2. find the budgeted number of deliveries and allocation rate for distribution costs. (3.5 marks)

3. Prepare the production budget in units. (2 marks)

4. Use the production budget to:

1. find the budgeted number of set-ups, set-up hours and the allocation rate for set-up costs (5 marks)

2. find the budgeted total machine-hours and the allocation rate for processing costs. (2.5 marks)

5. Prepare the direct materials usage budget and the direct materials purchases budget. (5 marks)

6. Use the direct materials usage budget to find the budgeted allocation rate for materials-handling costs. (2.5 marks)

7. Prepare the direct manufacturing labour cost budget. (1.5 marks)

8. Prepare the manufacturing overhead cost budget for materials handling, setup and processing. (1.5 marks)

9. Prepare the budgeted unit cost of finished good (16.5 marks) and ending inventories budget. (4.5 marks)

10. Prepare the cost of goods sold budget. (3 marks)

11. Prepare the non-manufacturing overhead costs budget for marketing and distribution. (1 mark)

12. Preparea budgeted income statement (ignore income taxes). (3 marks)

13. Compare the budgeted unit cost of a chair to its budgeted selling price. Why might

Warsaw Ltd continue to sell the chairs for only $70? (6 marks)